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Facing DOJ challenge, 3M puts Avery deal on back burner

by William McConnell in Washington | Published September 5, 2012 at 9:32 AM

3M Co. has pulled an application to buy Avery Dennison Corp.'s office and consumer products division for $550 million after the Department of Justice informed the companies it would challenge the merger on antitrust grounds.

DOJ found that Avery is 3M's closest competitor for the sale of adhesive-backed labels and sticky notes, of which 3M's Post-it brand leads the market. The proposed merger would have given 3M more than an 80% share of both the U.S. markets for labels and sticky notes, the DOJ said. The department said that the proposed acquisition "would have substantially lessened competition in the sale of labels and sticky notes, resulting in higher prices and reduced innovation for products that millions of American consumers use every day."

St. Paul, Minn.-based 3M on Dec. 21, 2011 agreed to acquire Avery's office and consumer products unit, which includes Avery's labels business. The DOJ noted that the agreement specifically excluded some sticky notes assets, but left Avery without its brand or the sales and distribution system necessary to compete effectively in the sticky notes market.

DOJ antitrust head and Acting Assistant Attorney General Joseph Wayland characterized the partners as having abandoned the transaction, and welcomed the moved. However, the companies promised to fight on, saying they had "voluntarily withdrawn the notification and report forms filed under the Hart-Scott-Rodino Act" in light of the DOJ's concerns.

"3M and Avery Dennison have not terminated the purchase agreement governing the transaction," they said. "The companies continue to believe the transaction would benefit customers and consumers. 3M and Avery Dennison are committed to working together to explore options to address the DOJ's concerns, obtain regulatory approval, and complete a transaction between the parties."

The DOJ said 3M and Pasadena, Calif.-based Avery have long dominated "adjacent spaces" in the office products business, with Avery in labels and 3M in sticky notes.

They became direct competitors in 2009 when 3M entered the labels market in the U.S. The DOJ noted that 3M's entry prompted Avery to lower wholesale prices, increase promotions and customer rebates and accelerate innovations in labels. Avery also began selling its own branded sticky notes.

"As a result of the competition between 3M and Avery for the sale of office products, customers have saved millions of dollars and benefited from innovative labels and sticky notes products," the department said.

3M and Avery are fierce competitors outside the office and consumer products arena too. In June 2010 3M filed suit against Avery in the U.S. District Court in Minnesota, alleging that Avery's retroreflective sheeting products, which are used for highway signage, infringe a number of 3M patents. Avery subsequently filed a lawsuit against 3M in the U.S. District Court for the Central District of California, alleging, among other claims, that 3M monopolized or attempted to monopolize markets for retroreflective sheeting in violation of the Sherman Act.

3M's motion to transfer the antitrust case to the U.S. District Court in Minnesota was granted in February 2011. Both cases are now in the discovery phase.

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Facing DOJ challenge, 3M puts Avery deal on back burner

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